When you hear the word “enterprise,” what springs to mind? Maybe a big company like Coca-Cola or IBM. Rarely do people think of an enterprise as being their own business? But in fact, every small business is also an enterprise.
The thing that differentiates a small business from other types of enterprises is its size and scope. When it comes to managing risk, there are many similarities between large companies and smaller businesses: both need to assess the risks they face; both need to identify ways of reducing those risks; and both need to put measures in place so that if disaster strikes they can still carry on trading while repairing any damage done by the event.
So both require an effective enterprise risk management system to run a healthy business. But what exactly is enterprise risk management, and how does it work? Let’s find out!
What is enterprise risk management
Enterprise risk management (ERM) is the ongoing process of identifying, measuring, and mitigating risks to your organization in a systematic way. The overarching goal of ERM is to ensure that your business maintains continuity so that you can continue operating when a risk materializes.
It may sound simple in theory, but it’s not always easy to do in practice.
But why is this such an important concept? To answer that, we can look at what happens when companies do not take their risks seriously enough.
A 2008 report by the Association of Certified Fraud Examiners found that around 5% of global organizations go bankrupt within a year of suffering a major risk incident. And according to research by the Ponemon Institute, organizations that do not have an ERM strategy in place are five times more likely to go out of business than those that do.
So it’s safe to say that any company – large or small – cannot afford to be complacent about its risk management strategies. But what is enterprise risk management and how can you apply it to your business?
How does enterprise risk management work
Enterprise risk management is a long-term process that starts with the creation of an ERM program. This program contains all the essential elements required to establish your company as a serious professional business.
- It defines who’s responsible for making decisions about risks
- It sets out how you will monitor and measure risks
- It shows how you will make the business aware of emerging risks
- It demonstrates how problems will be dealt with once they’ve occurred
Once your program has been set up, enterprise risk management then becomes part of everyone’s daily work – your team must all learn about the risks the business faces and play their part in reducing the chance of those risks occurring.
Enterprise risk management benefits
As we’ve seen, enterprise risk management is all about reducing the chance of your business suffering from a significant event.
Here are some of the benefits of enterprise risk management
- Your business won’t go bankrupt
- You’ll see a decrease in risk incidents
- You can continue operating when disaster strikes
- Your business will be a safe place to work
- You will avoid costly fines and legal issues
Enterprise risk management is a powerful practice. If you’re interested in this approach, there are several ways to get started. It can be done using something as simple as a spreadsheet or whiteboard; alternatively, you may wish to use an ERM software solution to keep track of your risks and progress. The important thing is that it’s done!